1. I assume that because I am downloading a zip file that I will not be installing this theme through Word Press Theme menu in dashboard?
There are two downloads for each theme. The shaper is a full WP install, with the theme, demo content, and all plugins that were used for the demo. There is also a download that is just the theme; that download can be installed through the WP admin, just like any other theme. I
do recommend installing the shaper on a test site, just so you can see how everything works.
2. Why do I need to Create a new database for my installation? I want to use my current site photos and such...will I be able to import my current site through Word Press import tool?
You only need to create a new database if you're using the shaper installer. It
is possible to install the shaper on top of an existing site, but injecting the demo content erases any existing database content, so you definitely don't want to do it on a site that has content you intend to keep.